Tuesday, January 6, 2015

Microsoft (MSFT) 2015 Review

Microsoft is the world’s largest independent developer and seller of computer software products for a wide range of computing devices. It also sells the Xbox video game console, Nokia mobile phones and the Surface tablet.  The company has earned between 25-40% return on equity over the last 10 years and has grown its earnings and dividends at an 11-20% pace over the last five years. MSFT was experienced a slowdown in profit growth of late due to the costs associated with the acquisition of Nokia Device and Services, but should return to above average earnings growth as a result of:

(1) its dominant position in the PC market,

(2) expansion into the mobile space,

(3) investing heavily in cloud computing,

(4) the Xbox is growing at an above average pace,

(5) the Bing search engine is taking market share.


(1) softness in the core computing market,

(2) intense competition along with lagging sales in the mobile computing market.

MSFT is rated A++ by Value Line, the company has 17% debt to equity ratio and its stock yields 2.6%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  
               Yield        Growth Rate     Ratio       Since 2005

MSFT        2.6%           14%               49%             9
Ind Ave     1.8               14*                36               NA 

                Debt/                     EPS Down       Net        Value Line
              Equity         ROE      Since 2005      Margin       Rating

MSFT        17%          22%            3                22%          A++
Ind Ave      18             17              NA              18            NA

* the vast majority of companies in MSFT industry do not pay a dividend

            Note: MSFT stock made good progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in an uptrend (blue lines).  Ditto intermediate term (purple lines).  Ditto short term (brown line).  The wiggly red line is the 50 day moving average.  The Aggressive Growth Portfolio owns a 50% position in MSFT.  The upper boundary of its Buy Value Range is $41; the lower boundary of its Sell Half Range is $76.


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